Silicon Valley may not be as dead as some folks think, at least judging from the remarks of our venture capital futurists gathered to discuss the state of the industry. Dick Kramlich of NEA pointed to the solid returns his firm has scored, Ted Schlein of KP fame talked up cleantech (and later got a lecture from Stanford's Tom Byers--see photo), Gary Rieschel of Qiming spoke of a China fever and Charles Comey of MoFo confided that's he working on a lot of new deals (even though he wouldn't confess just how many RMB funds he's working on for investment firms in China.) AVCJ's Dan Schwartz (photographed with George Drysdale) challenged the industry leaders to reconsider whether it's time that venture capital needs some sort of facelift or just a new strategy to face the new millennium, considering the losses of the last decade. At least March was a lot better than the previous 18 months for the venture business. So for now, I'm all for keeping up an upbeat spirit.Our next futuristic event to challenge conventional thinking is April 21, at the Harvard Club NY. Contact me if you want an invite. Thanks goes to our sponsors NEA and Morrison & Foerster. Couldn't have done this Silicon Dragon-Future of VC event without you! Rosewood too.

$1 Billion and AmbitionWhat China is doing to become the world’s outsourcing giantBy Rebecca FanninForbes, March 18, 2010The chief executive of VanceInfo, Chris Chen, had no qualms in telling me that he wants the business he founded in 1995 to “become the biggest outsourcing firm in the world.” We met between flights at Beijing’s airport. He is on this way, counting Microsoft, Hewlett-Packard and IBM as clients. He’s not the only one advancing China’s push into the vast, varied outsourcing market. In northeastern China’s industrial city of Shenyang, I recently met with Liu Jiren, the CEO of Neusoft – the largest Chinese outsourcing company with $540 million in revenues, 15,000 employees and 8,000 corporate customers, the majority of them in China and nearby Japan. China offers a large talent pool of skilled workers who can handle both basic jobs such as processing insurance claims and mortgage loans to more technically advanced information technology jobs. Its outsourcing firms position their services for both local as well as international companies. One big selling point: cost. Compared with India, pricing for this labor is generally 30% less. Then, there is ambition. China’s quest to lead the outsourcing ranks has no match. Name another country in the world that would craft a plan to spend $1 billion in subsidies, incentives, and training like China has in outsourcing. In grand fashion that recalls successive five-year government plans, this project seeks to develop 1,000 vendors, attract 100 multinational customers and foster the growth of 10 hubs nationwide for outsourcing. The goal is to create 1.2 million jobs in China by 2013.China’s disadvantages compared with India are real, though. First, India has a natural advantage with English language skills. Secondly, India is typically considered less risky when it comes to intellectual property protections. India also has an edge in managerial skills to tackle more high-end, technical projects. Last year, the Mainland’s outsourcing market grew by 25% to reach $25 billion in revenues, according to Chinese government statistics. That’s a fairly sizeable chunk compared with the $60 billion and 16% growth rate that industry association NASSCOM pegged for India in 2009. China has the opportunity to surpass India in outsourcing in a couple of ways. Infrastructure is one. The Haidian tech district of Beijing is home to several challengers, all with the suffix “soft” in their name -- Beyondsoft, iSoiftstone, ChinaSoft – headquartered in modern office parks that resemble the finest in Silicon Valley. In Shanghai’s Zhangjiang Park, state-of-the-art facilities can be found in structures built to resemble a modernized version of Versailles, complete with moats and landscaped gardens (plus sports facilities, too). The scale of these zones is far larger than those in Bangalore, home to Infosys and Wipro. But China needs to develop a global reputation for outsourcing. It’s a factor that Neusoft CEO Liu readily acknowledges, and one reason why he’s initially focusing on getting customers closer to home. Chinese outsourcing vendors rely on a large percentage of their work within the region or domestically – unlike India which derives the bulk of its business from abroad. Currently, any manager at a multinational company looking to outsource work to China would face challenges in navigating through all the options of firms, locations, pricing and specialties. It takes on-the-ground insights to figure out, for instance, that Nanjing is making a claim as one of the country’s most promising biomedical hubs for outsourcing of pharmaceutical research and development and clinical trials. That’s in spite of outreach efforts. Last May, municipal officials staged a welcoming ceremony for a group of investors, biomedical experts, entrepreneurs, technologists and real estate developers – even a doctor from Mayo Clinic – to witness the establishment of a biotech center in a city software park. Later the group toured a lab that is standardizing herbs for use in Chinese traditional medicine, the facilities for an animal testing lab (still empty) and met with Gian Gao, dean of the Nanjing University’s School of Medicine and a professor at Yale. Chuck Zhu, CEO of a NJ PharmaTech, a startup that moved from New Jersey to Nanjing to do contract research here, beamed as he showed the delegation his new office space at the biotech zone. Former Chinese government official Roc Yang, who today leads Beijing-based China Data Group, an outsourcing firm that specializes in financial services, is leading the charge for Chinese outsourcing firms to develop a unified voice and higher profile. He and others in the business would like China to have an industry-wide association like India has had for years with NASSCOM. It will take some time before China gains the spotlight in outsourcing, but its rapid rise is just one more sign of the Dragon’s power.

Need I also mention that I wouldn't mind having one of these robotics vacuum cleaners? Only in India can you find it now. But the inventor I met in Bangalore--Janesh Janardhanan at Robhatah--tells me this nifty device is coming to shelves soon at less than $150. Watch it work here:

Feng Deng didn't mention this to me when I saw him recently at Tsinghua Science Park, but his China-Siicon Valley firm, Northern Light Venture Capital, has just made a new hire: Lei Yang as venture partner. Lei, a returnee to China from the U.S., is sourcing deals from the Beijing office in some of the firm's key areas of investment: cleantech and semiconductors. He joins NLVC from VantagePoint Partners in San Francisco where he was a principal for three years focused on investment in solar, electric vehicles, lighting and energy storage. A PhD from the University of Wisconsin-Madison who also sports a degree from Peking University, Lei began his career at McKinsey & Co. in 2001. Expect to hear more from Lei soon, as he is well-connected in the venture capital and tech space in China and Silicon Valley.

Wednesday, March 10, 2010

India's entrepreneurial journey is a few years behind China's own path, but the gap is narrowing. I was surprised to see this in a recent three-week stint of interviews there.Like China, India has a growing number of startups with innovations designed to disrupt standards and help solve big problems in sectors including biomedical, clean technology, digital communications and e-commerce. Yet China still has unique advantages over India, which I'll get to later.A Chennai-based entrepreneurial team led by S. Nandakumar has a robotics system to precisely guide a needle to a tumor for a biopsy. A geek named Bikash Barai showed me a demo of a simulated cybersecurity attack, and the software his startup, iViz, has developed to prevent hackers from stealing confidential data. In Bangalore, Robhatah founder Janesh Janardhanan, demonstrated how this soon-to-be-launched robot-powered vacuum cleaner works. At a retail price of less than $150, it seems like a bargain. I'm curious to see if Wal-Mart stocks it. Two Stanford and Indian Institute of Science Ph.D.s have a 3-D interactive application that makes online games, avatars and greeting cards come alive on mobile screens. Their startup, 3D Solid Compression, will soon debut software on Nokia and Sony handsets. I also met with an impressive group of entrepreneurs in India working on the next generation of electric cars (Reva), recycling facilities for transforming electronics waste into precious metals (Attero), energy monitoring systems (Connect M), plus solar-powered LED lanterns (DLight) and water purification pumps, lights and energy (Kotak Solar). (See my Forbes Velocity blog: "Cleantech Startups Heat Up in India") The Silicon Valley culture of tech entrepreneurship and venture capital has been slower to take hold in India than in China. Venture investment in both markets accelerated during the dot-com boom and quickly deflated with the Internet bust. It took India until 2006 for a second wave of investors to arrive, joining veteran shop Sequoia Capital India. In China, funds from Sand Hill Road poured in earlier and by 2008, $9.3 billion was invested in Chinese startups. The comparable figure for India was $8.5 billion in 2008. Combined, these two countries make up 80% of Asia's venture investment.Mirroring China, India is undergoing its own surge in mobile communications, and much of the startup action is centered in this market. Already, India counts more than 500 million mobile phone subscribers, second only to China's approximate 700 million users.The popularity of mobile has led to a swarm of startups relying on the cellphone as a business platform, from gaming companies Nazara, Games2Win, and Kreeda, to search firm Just Dial, to ring tones and advertising, inMobi.But Internet usage in India lags far behind China. Only about 81 million users surf the Net in India, with a mere 5 million using broadband connections. That compares to 384 million Internet users in China, 83 million of them on high-speed. This gap in Internet usage is one reason why China has turned out so many publicly listed online winners while India has struggled to break through. For instance, in China, search site Baidu, e-commerce marketplace Alibaba, travel site Ctrip, online classroom New Oriental Education and Technology, and gaming and social networking sites Shanda and Tencent all have gone public--many with lofty valuations. The comparables aren't there yet in India because the Internet is still in the early stages of development. India has numerous online travel sites--TravelGuru, Cleartrip and Yatra. Not one has scored yet. TravelGuru was acquired by Travelocity last year for $12 million in a money-losing deal for the venture investors. While India has its share of outsourcing, portal and mobile startups that have gone public, the success stories among dot-com players nearly starts and ends with job site Naukri, the Monster.com of India, which founder Sanjeev Bikhchandani took nine years to take public. India's startups must go public first on in-country stock exchanges while Chinese startups can detour to Nasdaq or the NYSE without listing at home. This helps explain why China gets more credit for financial homeruns. As India's Internet population grows, more home-grown startups in e-commerce, gaming and social networking could take off. Some up and comers I met with include online book seller Flipkart, customized merchandise seller Myntra, Twitter-like GupShup and a Facebook wanna-be named Minglebox. Many of these Indian brands compete with big American Internet brands, partly because of the shared English language. That's a key difference compared to Chinese startups that have used their local language advantage to beat Google, Amazon and eBay.One advantage for India's startups over China's: Entrepreneurs there have a faster runway to selling abroad. Some of their young businesses are really just a new twist on outsourcing, building upon the early successes of Infosys and Wipro in the early 1990s and later public listings of smaller firms such as Mindtree. I stopped by TutorVista, the brainchild of serial entrepreneur K. Ganesh. His service offers unlimited sessions with Indian tutors to U.S. residents for $99 a month. I also met with Uday Challu, the entrepreneur at iYogi, which markets a remote PC service hotline staffed with workers in India who provide unlimited tech support for $149 annually. The most visible difference between these two rapidly evolving consumer and technology markets is infrastructure. Beijing and Shanghai are a marvel of upgraded highways, subways lines and architectural achievements such as the new airports, mag-lev trains and up-to-date software parks. India's faulty infrastructure is improving, though hardly on the scale of China. In Bangalore, Delhi and Mumbai and other major cities, metros, bridges and multi-lane highways are being constructed, if slowly. Power supply is still sketchy. Modern commercial zones are popping up, ranging from Whitefield on the outskirts of Bangalore to Gurgaon in Delhi and lots of recently erected skyscrapers in Mumbai's Lower Parel district--easier to get to now thanks to the Sea Link bridge. Signs of India's growing middle-class population and consumerism are appearing as well. Café Coffee Day's founder VG Siddhartha has made his chain nearly as prominent as Starbucks in the U.S. Another positive indicator is an ample supply of five-star hotels from India such as Oberoi, Taj and Leela that are bustling with business--that in spite of the recent terrorist attacks in Mumbai and the extra security that is still very much in place. It's easy to be seduced by China and its fast forward economic and technologic achievements. But even after years of reporting extensively on China, I find India to be refreshing. I left India encouraged by the groundswell of innovation and entrepreneurship and the spark of creativity that democracy encourages. The open access to the Internet in India helps too. (from my Silicon Dragon column in Forbes)

Energy efficient light-emitting diodes or LEDs for short are the new venture investment hotspot, judging from the swarm of businesses that are getting funded. WI Harper just inked a deal with a Taiwanese firm that tests LED chips, Testar Electronics Corporation. It's the venture investor's third company in LEDs in Taiwan: SemiLEDs Corp. and NeoPac Lighting Group are the two other promising firms. I've met with the founders of both of these in Taipei. Trung Doan (in photo with Silicon Dragon author Rebecca Fannin), the founder of SemiLEDs, has several patents for producing LEDs at lower cost but still with reliability and quality. Jeffrey Chen, the founder of NeoPac, has patents for bright light with less power. See earlier blog post for more info, June 22, 2009. As LEDs go mainstream, expect to start seeing them used in households. For example, Sonny Wu of GSR Ventures in Beijing just showed me an LED light bulb that one of his firm's five portfolio companies in this space is launching soon. Currently, LEDs are most often used for street lights, and the backlights of personal computers and TVs. Projections by industry analyst iSuppli are that LED shipments will nearly triple from 63 billion this year to 166 billion by 2013. The "sweet spot" for Testar, which was founded in 2007, is an outsourcing service to test LED chips. WI Harper has recently closed a new investment fund, and has been inking several new deals in Greater China to fit its early stage tech focus, including a new wind blade manufacturer in the Mainland: Jiangsu Chuangzhou CTC Technical Fabrics, Co. The firm also made news recently by linking up with Kai-Fu Lee's Innvoation Works as a backer of the incubation lab founded by the former president of Google China. In Hong Kong, I recently interviewed David Lam, managing director of WI Harper, to hear his views on the firm's investment strategy in cleantech. Lam, in case you didn't know, is now the president of Silicon Valley's Asia America Multi-Technology Association. See Silicon Dragon Video.

Energy storage is a hot investment area in China. The latest deal in this sector is a $22 million Series C deal in Prudent Energy Inc., a manufacturer and developer of technology that can improve the efficiency of delivering energy on demand to telecom and power utilities. Northern Light Venture Capital and Sequoia Capital China led the investment, which was over-subscribed. Returning as backers were DT Capital and Draper Fisher Jurveston, which has been making numerous deals in the cleantech area in both China and India.

CEO Johnson Chiang said Prudent will use the new capital to expand its battery manufacturing operations in Beijing, where it relocated last year.

About Me

Rebecca is the author of Startup Asia (Wiley, 2011) and Silicon Dragon (McGraw-Hill, 2008), and a contributor to Forbes, writing about innovation and entrepreneurship globally. In 2009, she established news and events group Silicon Asia.
Rebecca has appeared on Channel News Asia, Fox Business News, CCTV, SkyTV and Reuters TV. She has spoken at Harvard, Yale, Columbia and USF.
Her consulting work includes a white paper on China outsourcing and tech innovation trends for KPMG, digital marketing content for Sony Ericsson. In 2010, she provided expert testimony before a U.S.-China Commisssion in Washington, DC.
Earlier in her journalistic career, Rebecca was an international editor at Red Herring, AVCJ, AdAge and the Pulitzer-owned International Business. Her articles have appeared in Inc., Fast Company, Harvard Business Review, The Deal, CEO, Huffington Post, AsiaWeek, Asia Inc., Worth, NASDAQ magazine and Wired.
A graduate of Ohio University Scripps School of Journalism and an Asian studies fellow with the Freedom Forum, Ms. Fannin also was a Dow Jones intern at the Dayton Journal Herald. She is a member of the Overseas Press Club.